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Globalization of Technology Poses Challenges for Policymakers

By Mary Lowe Good

Technology is directly linked to national economic growth, and its globalization poses difficult challenges for policymakers, not just in technology policy, but in areas such as trade and regulatory policy. Technology-related policy issues are made all the more difficult as one struggles to interpret the national interest, when much of the technology needed for national growth is developed and managed by multinational companies whose markets, operations, and sources of capital are distributed throughout the globe.

The sources of this growth - capital, technology, and even labor - are increasingly globalized. Investment capital flows around the world daily in search of the greatest returns. As an example of the globalization of labor, thousands of engineers in India are designing computer chips for America's leading firms, and beaming these designs overnight to California and Texas via satellite. As more workers telecommute on a global basis, we may well begin to ask, "What is the American workforce?"

But it is technology that contributes most to economic growth. Leading economists estimate that technology accounts for at least one half of economic growth in the advanced industrial nations over the past 50 years. This is not to say that science should take a back seat to technology. Science is an integral part of the balanced portfolio of research an advanced nation must have to ensure its long-term growth. But science alone cannot secure a nation's competitive edge. The results of basic research are available to the world - often instantaneously over the Internet - with the potential to generate economic benefits for any company capable of using those results.

In contrast, in this high stakes poker game we call global competition, technology - by virtue of its proximity to the market - must be played close to the vest. Yet as the world's nations scramble for a winning hand, technologies - in the form of products, know-how, intellectual property, people and companies - are being traded, transferred, hired, bought and sold on a global basis.

In addition to global trade in technology, technology infrastructure - once the sole domain of advanced industrial nations - is increasingly globalized as nations around the world recognize the linkage between indigenous technology assets, and economic growth and job creation. In the U.S., our attention has long been focused on the technology policies of our European and Japanese trading partners, and we have carefully examined their science and technology policies and R&D spending patterns. Support for R&D remains strong, and collaborative efforts - industry-government partnerships, as well as bilateral and multilateral cooperation - are major strategic thrusts.

While science and technology in Europe and Japan will continue to have important implications for the U.S., growth in these countries will be much slower over the next two decades than in a good deal of the rest of the world. Instead, the locus of world economic growth is shifting dramatically to places such as Argentina, Brazil and Mexico in the West, to Indonesia, South Korea and China in the East. Growth rates in these countries are expected to be phenomenal, and they are soaring now: Argentina at 7.4 percent, Indonesia at 7.3 percent, Malaysia at 8.8 percent, South Korea at 8.4 percent, Singapore at 10.2 percent, and China at 11.5 percent.

As a group, these newly industrialized countries pose a competitive challenge that could erode the high-tech position of the advanced industrial nations. They recognize the linkage between technology, growth and jobs, and view their participation in world markets for high-tech products as a matter of national pride. Many have set their sights on joining the ranks of the world's technological leaders. To that end, many have established a basic two-pronged strategy directly aimed at economic growth competitiveness: first, acquire technology from the world's leaders to compensate for inadequate science and technology infrastructures; and second, address those short-comings by aggressively developing indigenous technology resources. Many of these nations have backed up their strategies with formal development plans.

A look at South Korea offers a harbinger of things to come if these nations bring their national visions to fruition. South Korea has great ambitions to become a G-7 nation by 2001 and an equal partner with the advanced countries. It plans to pave its path to advanced industrial status with information technology, fine chemicals, biotechnology, new materials, and aeronautics. Some Korean companies are now working in cutting edge technologies that were once the sole domain of advanced industrial nations. Samsung, a South Korean company, is now the world's largest maker of DRAMs, and Korea plans to spend $50 billion on an information superhighway.

Since 1980, the South Korean government has increased its R&D investment significantly. The science and technology budget has increased by 15 percent annually and jumped to over 30 percent in the 1996 budget. The Korean government plans to increase its R&D spending to over 4 percent of the GDP by 1998, and to 5 percent by the year 2000. Following the same trend, the Korean private sector has rapidly augmented its R&D investment by about 20 percent annually, encouraged in large part by government incentives. As a result, total R&D investment has increased from $418 million in 1981 to over $5.4 billion in 1995.

While one can certainly say that South Korea is just one country, and its resources and capabilities incomparable in size and scope to those of the U.S., Europe and Japan, all indicators suggest that there will be many such nations both crowding and expanding world markets, challenging traditional market leaders for a share. It is happening now. From 1994 to 1995, non-Japanese semiconductor suppliers in the Asia/Pacific region increased their world market share from 8.9 percent to 12.1 percent. The Europeans lost very little; instead, these gains came at the expense of Japan and North American countries.

In my view, policies designed to address the globalization of technology should seek to leverage a nation's interests in the global market place, but do so without impeding world business and growth. First, in the international arena, we need to agree on some reasonable rules of the game.

For example, the Trade Related Aspects of Intellectual Property (TRIPs) Agreement will raise the standards of protection given copyrights, trademarks, patents, industrial designs, semiconductor chip layout designs, and trade secrets in all of the countries that become members of the World Trade Organization. High-tech companies should be major beneficiaries. For instance, U.S. software vendors supply 75 percent of the $77 billion world market for packaged software. Yet it has been estimated that piracy deprived U.S. software developers of about $13 billion in worldwide revenues in 1993. U.S. vendors' future competitiveness depends most significantly on the level of protection of intellectual property rights worldwide.

The globalization of technology has brought many new opportunities for bilateral R&D cooperation and for multilateral cooperation. The precompetitive technologies developed jointly in such collaborations are clearly destined for commercial use and, thus, these arrangements must be carefully crafted to create the appropriate balance between cooperation and competition. The U.S. Commerce Department has worked hard to ensure adequate protection of intellectual property rights, and to develop frameworks that ensure balanced contributions and equitable benefits. The Intellectual Manufacturing Systems Program was ground-breaking in the development and testing of such a framework for multilateral cooperation, and we hope it will serve as a model for other international initiatives.

Second, nations must recognize that the globalization of technology has important implications for their domestic policies. For example, the U.S. Food and Drug Administration's product approval process and export regulatory requirements are critical issues affecting U.S. exports of medical equipment and supplies. This industry cites regulatory delays as one of the key reasons that U.S. manufacturers have relocated some of their production and R&D facilities overseas. Recent data show a significant increase in overseas investment by medical device firms. Foreign direct investment capital outflows from the U.S. grew from an annual outflow of $333 million in 1989 to more than $1 billion in 1992.

Finally, with the globalization of capital, labor and technology, countries everywhere are striving to attract these engines of wealth creation to their shores, help them grow, and keep them within their borders. In the U.S., we have taken a number of measures to make our country a more attractive place to do business. For example, we are working toward deficit reduction and a balanced budget to free up capital for private sector investment. The recently passed telecommunications reforms will unleash a tidal wave of investment, creativity and new technology that will further buttress the U.S. lead in the Information Age. And the President and Vice President have championed the cause of modern infrastructure through the National Information Initiative, generating interest, excitement and investment across the nation.

Thus, global competition is taking place on two levels. First is the competition between companies. Second is the competition between nations to attract and retain the engines of wealth creation that increasingly skip around the globe looking for the best opportunities. This is a competition for investment capital, technology, business activity, and the jobs that come with them.

People around the world have recognized this competition between nations. For those nations who have little in the economic arena, the competition is perceived to be filled with opportunity and hope for the future. In contrast, for those nations that have had much, including the U.S., this competition has raised much anxiety. Yet we cannot turn back the clock and we cannot secede from the global competition. Our challenge is to prepare ourselves to seize the opportunities and create fertile ground for economic growth, with a healthy business climate, a modern infrastructure, and a world-class workforce.

Mary Lowe Good is the Under secretary for Technology in the U.S. Department of Commerce. This article was adapted from her comments at the 1996 APS March Meeting in St. Louis, Missouri.